Buying a home with bad credit enables you to start rebuilding your credit score. You can also enjoy the thought of growing your equity, a valuable investment. Besides these common benefits of homeownership, with a subprime mortgage you can also avoid PMI, have flexible terms, and qualify easily.
No PMI Premiums
Private mortgage insurance (PMI) is required for conventional loans when less than 20% is put down. Subprime lenders don't have this requirement, so you can save hundreds a year on this common mortgage cost.
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Without a PMI requirement, you can easily get into your new home with zero down. You will have slightly higher rates. But, you should also realize that if you refinance for conventional terms, you will have to have PMI if your equity is less than 20%
Bad Credit Loans Have More Flexible Terms
Subprime lenders also offer more flexible terms for people with poor credit. Besides presenting adjustable or fixed rates, lenders also offer balloon payments or interest only. You can also borrow more than the conventional loan caps, also known as a jumbo loan.
You also have the option of buying down rates by paying points at closing. This is a good deal if you don't plan on refinancing or moving in the next seven years. A refinancing option can also be part of your loan terms.
Bad Credit Loans are Easier To Qualify For
Subprime mortgages are easier to qualify for than conventional loans. Bad credit isn't a hindrance. Neither is a high debt to income ratio or small cash reserves.
Adjustable rate and interest only loans can help you qualify for more. The trade off is the security of a fixed rate. However, ARMs can have caps in place to protect you from rapidly rising payments and interest rates.
However, you can expect to pay slightly higher rates with such lenders. The reason is that the risk level is higher with such loans. Depending on your credit situation, rates will be 2% or higher.
Comparison shopping will help you find the most reasonable lender. Also check with traditional lenders, since they are also in the subprime home loan market. With a little bit of time, you can find a mortgage that will help you enjoy the benefits of owning your own home.
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